For health, education, workforce, finance and other non profit and public service organizations that want to leverage resources and strategically plan for U.S. or international market expansion.

Monday, October 7, 2013

Comparisons: McKinsey Global Survey on Improving Board Governance

By Virgil Carter

Every organization, whether
for-profit or non-profit, strives to achieve an effective governing board. McKinsey & Company, a recognized leader
in organizational management in the
for-profit corporate sector, often provides research useful for profit oriented
and non-profit organizations alike. In a
recent 2012 survey, “Improving Board
Governance: McKinsey Global Survey
Results”, McKinsey has some interesting findings which may be useful
benchmarks for non-profit CEOs and volunteer leaders.

Survey contributors Chinta
Bhagat, Martin Hirt and Conor Kehoe write, “Board directors today are more confident in their knowledge of the
companies they serve and more strategic in their approach than they were in
2011. We asked respondents to
focus on the single board with which they are most familiar. Overall, 166
respondents represent publicly owned businesses, and 606 represent privately
owned firms; they represent the full range of regions, industries, and company
sizes.

Focusing on Strategy

“Over 90
percent of respondents also say their boards have become more effective over
the past five years, most often attributing that improvement to better
collaboration with senior executives and more active or skilled independent
directors”, according to the survey.

Two reasons
may explain why boards are most effective at strategy: board members say they
spend more time on it than other areas and that they have increased the amount
of overall working time they devote to strategy, answering the call to action
expressed by respondents to previous surveys. “In our 2008 survey, respondents
reported that 24 percent of board time was spent on strategy—and a clear
majority said they would increase the time spent.” Now, directors say their boards
spend 28 percent of their time on strategy, and only 52 percent say they would
increase it (compared with 70 percent of respondents who said so in 2011).
Meanwhile, the share of time spent on execution, investments, and M&A has
shrunk, which is likely related to the fact that overall M&A activity has
declined since 2007.

Room for Improvement

While
respondents say their boards are taking more responsibility for strategy, risk
management is still a weak spot—perhaps because boards (and companies) are
increasingly complacent about risks, as we move further out from the 2008
financial crisis. This is the one issue where the share of directors reporting
sufficient knowledge has not increased: 29 percent now say their boards have
limited or no understanding of the risks their companies face. What’s more,
they say their boards spend just 12 percent of their time on risk management,
an even smaller share of time than two years ago.

Despite the
progress they report, directors identify the same factors that would most
likely improve board performance as respondents did in the previous survey: a
better mix of skills or backgrounds, more time spent on company matters, and
better people dynamics to enable constructive discussions. With respect to
time, directors say they devote roughly the same number of days to board work
as in 2011, and they still want more time. Across regions, directors at North
American companies work an average of 22 days on company matters—notably less
time than the 29 days and 34 days, respectively, reported by directors at
European and Asian companies.

Looking ahead

Increase
attention to risks.
According to respondents, most boards need to devote more attention to
risk than they currently do. One way to get started is by embedding
structured risk discussions into management processes throughout the
organization.

Make
time. As in 2011, most
directors say they want to spend more time on board work, and the results
suggest real benefits from doing so: directors at higher-impact boards
spend many more days per year on their work than everyone else, which
likely helps them stay more relevant to and engaged with important company
matters.

Learn
from peers.
Directors at boards with less impact have much to learn from the actions
taken by higher-impact boards, and not only when it comes to strategy.
Using robust financial metrics, conducting postmortems of major projects,
and using systematic processes to create competitive advantage through
M&A—which the high-impact boards do more often—could all help boards
become better.

How would you compare your non-profit
governing board to these results? Do you
periodically survey your board for bench-marking and opportunities for
governance improvement? For a full copy
of the survey findings, go to http://www.mckinsey.com/Insights/Strategy/Improving_board_governance_McKinsey_Global_Survey_results?cid=other-eml-alt-mip-mck-oth-1308

About Me

For health, education, workforce, finance and other non profit and public service organizations that want to leverage resources and strategically plan for U.S. or international market expansion.
Plexus Consulting Group® provides a broad-range of consulting and management services to not-for-profit and public service sectors. We help clients overcome challenge, achieve excellence, and maintain success.
The Plexus team of multilingual, multitalented professionals align themselves primarily among lines of industry specialization, including Globalization, Education, Workforce Development, Healthcare, and Financial Services.